Value-based Healthcare

Value-based healthcare is an approach to providing care that aims to restrict the growth in healthcare costs while maintaining or improving quality. The United States Medicare and Medicaid programs, along with a few pioneering employers and private health systems, are testing multiple strategies in this social experiment.

1. What is value-based healthcare and how will it impact healthcare?

Value-based healthcare is an approach to providing care that aims to restrict the growth in healthcare costs while maintaining or improving quality. In the US healthcare system, the emphasis on paying for units of service through fee-for-service plans has encouraged providers to order many services so they get the highest payment. Value-based healthcare strategies reward providers for improving health outcomes and quality while restricting the growth in costs.

Value-based healthcare is not a new concept nor is it more popular with one political party than the other. The March 2010 national health reform legislation, the Affordable Care Act (ACA), encourages value-based healthcare in several ways. The ACA calls for implementation of demonstrations, pilots, and programs for accountable care organizations (ACO), patient-centred medical homes (PCMH), payment bundling, and pay-for-performance (P4P) initiatives, and it extends a gain-sharing demonstration. The ACA also encourages the development of value-based insurance design, which is discussed in more detail later, and other value-based healthcare techniques. In addition, over at least the past eleven years, many non-partisan laws have furthered value-based healthcare approaches.

2. What specific impact will value-based healthcare have on American healthcare?

Value-based healthcare can affect US healthcare in at least three areas: (1) the organisation of delivery and payment systems, (2) the further integration of provider networks, and (3) a flattening of provider hierarchies in the healthcare system. All three of the trends will be fortified by re-structuring rules that govern relationships between purchasers, consumers, and providers. For example, accountable care organisations (ACOs), patient-centred medical homes (PCMH), and models that integrate primary care and behavioural healthcare will encourage all three of these trends.

Value-based healthcare encourages new service delivery and payment models. Accountable care organisations are networks or groups of providers (for example, primary care physicians, nurses, specialists, and hospitals) that are collectively responsible for healthcare quality and costs for a particular population. The ACOs share in amount saved by reducing growth in healthcare costs while still meeting established quality targets. The ACA legislation lets ACOs use a broad range of organisational forms. These include integrated health systems, physician hospital organisations, and group and independent practices.

Patient-centred medical homes assign each patient a primary care provider who leads an interdisciplinary care team. This provider facilitates seamless care across services and settings. The PCMH model exists in diverse settings and evidence is building for improved quality and decreased healthcare costs. The PCMH complements the ACO models and, in many cases, is expected to reside within ACO frameworks.

These new service delivery models will be paired with an increasingly nuanced understanding of payment systems and financial incentives. Bundled payment, pay-for-performance, and gain-sharing (similar to profit sharing) will continue to be revised as value-based healthcare evolves.

Value-based healthcare also encourages vertical integration of providers into ACO networks. As ACOs are a relatively new concept, it is not yet known if they will reduce the escalation in cost growth. It is possible that within particular local markets, ACOs will result in a monopoly where they could unilaterally raise prices. There are, however, provisions in the ACA designed to prevent this.

Finally, value-based healthcare encourages delivery of patient care through interdisciplinary patient care teams. In the past, large physician practices, hospitals, and some other settings have used interdisciplinary care teams. However, the ACA calls for significant expansion of these care models in all patient care settings. Interdisciplinary, team-based practices require flatter management structures that encourage collaboration and shared decision making as all team members with function as co-managers of care. This means that there will be a re-definition of traditional roles of specialists, primary care physicians, nurse practitioners, nurses, and other care team members. All team members will share responsibility for the clinical and financial outcomes of patient care. This will result in a flattening of the traditional hierarchical provider roles in American healthcare.

3. What are the key elements of value-based healthcare?

With US healthcare expenditures climbing to 18 per cent of GDP, a driving force behind the adoption of value-based healthcare strategies is curbing cost growth. However, the value-based healthcare equation is not one of cost control alone. When evaluating a value-based healthcare initiative, the important dimensions to consider are cost escalation, patient health outcomes, patient satisfaction, and process and other measures of quality of care.

The pursuit of value-based healthcare in the US follows a path littered with many barriers. Multiple, fragmented delivery and payment systems and entrenched political interests play a major role in influencing the design of those systems. Medicare and Medicaid are very large and initiatives launched through them are often adopted by private insurance carriers. Through the ACA, and multiple earlier laws, value-based healthcare techniques will be promulgated through Medicare and Medicaid demonstrations, pilots, and programmes. This is sure to have a profound effect on the overall structure of the American healthcare system.

4. How does value-based healthcare help in saving cost and promoting healthful practices?

Value-based healthcare techniques change incentives to consider the total health of the individual consumer. Patient-focused care reduces hospitalizations, re-hospitalisations, emergency department visits, and other expensive encounters. It also promotes good health. Consider the case of value-based insurance design (VBID), which seeks to increase value in healthcare through insurance design and incentives. One model of VBID reduces or eliminates cost sharing for services that are shown to have strong clinical benefits. VBID uses cost-sharing incentives to encourage consumer behaviour toward actions with clinical benefit. By encouraging patients to adhere to prescription drug regimens through low co-payments, purchasers expect to lower high cost hospitalisation, re-hospitalisation, or emergency department visits. While the cost of prescription drugs may be higher than before the new insurance design, the overall goal is to lower total healthcare costs.

VBID takes a broad view of purchaser healthcare costs. If one considers pharmaceutical costs without considering how adherence affects patient health, then it is possible to miss the opportunity to lower overall healthcare costs. Beyond VBID, pharmaceutical care management plays an important role in disease management, telemedicine, and other value-based strategies. Behind many of these initiatives, strategies that encourage patients’ prescribed drug regimens—or the introduction of preventive drug regimens—plays a vital role in preventing higher-cost medical procedures, visits, or needs. These are just a few examples highlighting VBID and related pharmaceutical care management practices that improve health and encourage prevention of illness while reducing the price tag of a particular condition or set of conditions. This is the general idea behind value-based healthcare—promoting health means less expensive healthcare needs for the individual.

5. How will this benefit providers and patients?

As the healthcare system adopts value-based healthcare strategies, providers have greater access to a more complete patient health history through electronic medical records, integrated health teams and systems, and innovative communication technologies. This improves the provider’s ability to oversee prevention, diagnosis, and treatment. Also, value-based delivery and payment systems are aligned with the patient’s best interest, so providers have fewer barriers to providing the best possible care. As care teams become more integrated, communication between providers along the care continuum will improve. This will result in fewer communication errors in patient care. As part of the ACA, health insurance exchanges and Medicaid expansions are being implemented to expand access to affordable health insurance for uninsured populations in the US This is intended to align incentives in the healthcare system towards the patient’s highest attainable health status.

6. How do you see value-based healthcare evolving in the future?

In the US, how value-based healthcare evolves will depend on the resolution of three challenges or apparent conflicts.

The first of these is the conversion of the system to electronic medical records (EMR). Electronic medical records are necessary to connect disparate care systems and providers that want to share patient information across physician offices, ACO networks, or states. In short, for new delivery system models to work, electronic medical systems must be in place. Barriers to EMR adoption include resistance on the part of some providers, the difficulty in implementing EMR systems that work together, and the lack of resources on the part of some stand-alone or small physician practices to invest in this infrastructure.

A second challenge is the coordination of new telemedicine and remote care technologies with the federal and state healthcare privacy laws. While technology is developing multiple innovative ways to bridge patients’ struggles related to care transitions, remote locations, or lack of shared information among providers, these all must operate in accordance with protecting a patient’s privacy.

Third, encouraging new provider behaviour is difficult in a system of multiple purchasers where incentives are either not recognised by the provider or not large enough for any one provider to reduce escalating costs.

So, how is value-based healthcare going to evolve in the US? A few pioneering integrated networks and purchasers are going to continue to lead the way until certain value-based healthcare strategies implemented by Medicare—and, in some cases, Medicaid—take shape. After one or two decades, other players will begin to adopt these value-based healthcare strategies as administrative, reporting, and payment systems begin to merge due to the power of Medicare, in particular, to drive market change. Electronic medical records, harmonisation of telemedicine innovations with privacy laws, and provider behaviour change will continue to be barriers in the short to mid-term. The political and policy negotiations on these three topics will play a vital role in accelerating the direction of the value-based healthcare trajectory.

7. Any other comments?

Thank you for the opportunity to share these insights and findings from the work at Altarum Institute’s Systems Research and Initiatives Group. This work focuses on advancing heath system reform by identifying what works and what doesn’t in the value-based healthcare arena: http://www.altarum.org/publications-resources-health-systems-research/strategic-innovations-healthcare-series.

Author BIO

Gloria N Eldridge has worked extensively in health policy and on the politics of national health reform. She is a Senior Analyst at Altarum Institute, most recently engaged in reviewing the major evidence in the field of value based purchasing. Dr. Eldridge is director of Altarum’s Strategic Innovations for healthcare Reform initiative and senior manager on the Congressionally mandated Centers for Medicare and Medicaid nation-wide review of wellness and prevention programs and their evaluation design. She is also a collaborating member of Altarum’s Center for Policy and Research Translation and Center for Elder Care and Advanced Illness. She holds degrees from the University of Texas at Austin, The London School of Economics, and Yale University.